EconoMonitor

Peterson Institute for International Economics

The House and China: A Squeak, Not a Roar

Nicholas R. Lardy says the House of Representatives’ bill to impose tariffs on China over the currency issue is unlikely to pass the Senate and would have minimal effects if it did.

Edited transcript, recorded September 30, 2010. © Peterson Institute for International Economics.

Steve Weisman: The House of Representatives, in one of its last acts before recessing, passed legislation to punish China over its failure to let its currency appreciate. Nicholas Lardy, senior fellow at the Peterson Institute, is here to talk about that bill and its prospects. This is Steve Weisman. Thanks, Nick.

Nicholas Lardy: Thank you, Steve.

Steve Weisman: What would this bill do?

Nicholas Lardy: When a case comes before the Commerce Department of an import causing damage to a US company or US industry or the workers in an industry, and we’re going to impose tariffs on that product, the bill would allow those tariffs to be even higher. In addition to whatever other factors might be taken into account, the [department] would also take into account the degree of undervaluation of the currency. So if the degree of undervaluation was 15 percent, the tariff wouldn’t just be going up by whatever subsidy there was. It would also add on the degree to which the Chinese currency is judged to be undervalued. Steve Weisman: But would the action or the threshold for action have to include other factors besides currency, would they have to prove those first?

Nicholas Lardy: Yes, they have to prove those first. This will not apply to all products. The [aggrieved party has] to show entry or the threat of entry. Then the bill tells the Commerce Department that they also need to take into account whether or not the currency is undervalued, as long as the currency is undervalued by at least 5 percent. If it’s below 5 percent, there’ll be no additional penalty.

Steve Weisman: Some of the news accounts suggested that it was more sweeping than that. What’s the effect if the legislation becomes law?

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Originally published at the Peterson Institute for International Economics.© 2009 Peterson Institute for International Economics.

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